The City of Moose Jaw lost nearly $8 million from its investment portfolios during the first quarter of 2020, according to a report from investment manager RBC Dominion Securities.
RBC manages two portfolios for the municipality: a long-term account and a moderate account that have a combined value of roughly $100 million. The banking institution has managed these funds since last July.
City council discussed RBC’s report during its May 11 regular meeting, later voting 6-1 to receive and file the report. Coun. Brian Swanson was opposed.
The long-term portfolio started January at $72.2 million, but by March 31, it had declined to $64.8 million. This is because the municipality withdrew $979,366, while the market value of the portfolio declined by $6.4 million, or 8.87 per cent.
Since its inception last July, the portfolio has had an overall decline of 5.92 per cent, or a loss of $4.3 million.
The moderate-term portfolio started January at $30.5 million, but by March 31, it had declined to $28.3 million. This is because the municipality withdrew $771,995, while the market value of the portfolio declined by $1.4 million, or 4.77 per cent.
Since its inception last July, the portfolio has seen an overall decline of 2.57 per cent, or a loss of $729,757.
The municipality has roughly $30 million in mutual funds, while it pays about 0.95 per cent in yearly management fees, said Swanson. This means the city pays RBC about $270,000 every year for those mutual funds and roughly $330,000 for the overall management of both portfolios, for $600,000.
“$600,000 is more than our sidewalk budget,” he remarked.
In RBC’s report, the organization wrote that investors have flocked to safe-haven government bonds during the pandemic, Swanson continued. What he founding interesting is while the world has focused on bonds now, a year ago the municipality sold off its high-quality bonds that were yielding 3.5 per cent in returns, right before the market declined.
While the investments might have declined during the first quarter, the markets have rebounded since the end of March, said Coun. Chris Warren.
“It’s probably worthy to note because we are hearing some fear-type language there. It would be interesting to see how they have rebounded even further than that,” he added.
As of May 8, the long-term portfolio was worth $68.6 million and had lost 1.3 per cent, while the moderate-term portfolio had a value of $29.1 million and experienced a small gain of 0.6 per cent, said finance director Brian Acker. The value of both portfolios is $97 million, although it could be $99 million had the municipality not withdrawn $1.74 million this year.
City council initially withdrew $3 million from the portfolio for projects and has used $1.74 million so far, he continued. Council approved the withdrawal of an additional $2.7 million for the Southeast Industrial Park and SaskPower, along with the withdrawal of $372,000 for the West Park playground upgrade, for a total of $6.1 million.
After hearing the results, Swanson pushed back against Warren’s comment about a “language of fear.” He pointed out he simply stated the facts that the municipality pays $600,000 in management fees, while he was quoting RBC’s report.
“It reminds me of the cliché … , ‘They think I’m giving them hell. I’m just statin’ the truth, and to them, it sounds like hell,’” Swanson said.
There is a cost to have RBC administer the portfolio and council knew that, said Coun. Scott McMann, who sits on the investment committee. The only reason council had RBC manage its money is because it believes the long-term returns will exceed the management costs.
“In hindsight, if we knew the markets would go down, maybe we would not make that decision (to sell off the bonds). But in the long-term, we are correct,” he continued.
Coun. Dawn Luhning refuted Swanson’s claim about not paying management fees before, pointing out council had someone manage its investments before RBC took over.
The next regular council meeting is Monday, May 25.